Making your Budgeting Process a Foundation for Growth
Lou Marmo, Managing Director
March 2014
One of the best ways to ensure that your strategic plan does not end up collecting dust on a bookshelf and instead becomes the foundation of growth in your company is to shift your budgeting process from one that is focused on just numbers to an operating plan with real actions tied to it.
An operating plan is not about green eyeshades putting numbers together. It’s total responsibility. It ties a thread through people, strategy, and operations, and it translates into assigning goals and objectives for the next year.
Larry Bossidy, former Chairman & CEO of Honeywell
We have all seen the 100 page PowerPoint deck that is done every year to support your Strategic Plan. This plan may outline the markets our company should be playing in, the customer we want to penetrate or grow with, the capital plans aimed at pushing the top line and cutting costs and the operations plan around efficiency and doing more with less. If you are like most companies the strategic planning session creates a buzz each year and employees get excited about the opportunities in front of them, but then the everyday fire fighting and day-to-day responsibilities become a distraction to executing what was in the plan.
The best way to avoid this syndrome is to take your annual budgeting process and turn it into a time to build out an operating plan to support the initial steps of your three to five year strategic plan. The operating plan process does not eliminate the need for a financial budget, it only provides a roadmap of how to achieve it with the what, how, when and most importantly, who questions being addressed. During this process your team should be asking the following questions when evaluating the feasibility of your financial budget:
- What actions/projects need to be under taken?
- How do we accomplish them?
- When do they need to be achieved by?
- Who is responsible for getting them done?
Every discipline needs to have goals (numbers with a timeline) that support the financial budget this way the team can track how they are doing throughout the year, and more importantly, adjust their actions if they are falling behind or getting ahead. For example, the sale teams should have specific revenue goals by customer, laid out by month which should be supported by the current sales funnel. Also, operations would have a “productivity deck” with a running list of projects they are working on to reduce costs or increase capacity – with timeline of when they will be done and who is responsible for them. By continuing to ask the question who, the team will be able to hold employees responsible for goals that are collaboratively agreed upon and can then be tied into compensation plans to further motivate. It will also become a terrific evaluation tool for your executives to use with tangible results being measured and removing “office politics” from this process.
The operating plan process needs input and buy in from all levels of the organization in order to be successful. Once implemented it will also become a good jumping off point each year for your Strategic Plan. By setting out clear goals, tied to numbers, that can be tracked each month, your company will be well on its way to executing the growth plans the team wants to achieve.
Lou Marmo joined Fahrenheit Advisors in 2014. Lou has had an impressive track record as CFO/COO with extensive M&A and turnaround experience. Lou believes that the role of Chief Financial Officer is to be the key business partner of the CEO and needs to understand all facets of the business in order to drive change in the organization. He knows it is critical to be a conduit to lenders, rating agencies, and the Board of Directors in reporting the results of the business and engaging in critical areas of success. Lou builds a culture driven by accountability and metrics, with “A” players developed internally and brought in from the outside.Read Full Bio